This Week in Chancery Court: Rocket, Kraft Heinz, Sculptor

A Delaware Court of Chancery judge is weighing whether to approve a settlement of litigation over Rithm Capital Corp.‘s acquisition of struggling asset manager Sculptor Capital Management Inc., but objections to attorneys’ fees may prolong that process.

Here’s a look at that matter and what else is coming up in the Chancery Court this week:

Monday: In re Sculptor Cap. Mgmt. Inc. S’holder Litig., Del. Ch., No. 2023-0921, settlement hearing 5/20/24.

At issue: Vice Chancellor Sam Glasscock III will consider approving a proposed $6.5 million settlement to resolve litigation over a merger that Sculptor founder Dan Och initially opposed. He changed his mind after Rithm increased its offer and made other changes to its terms. The settlement class includes anyone holding shares of Sculptor Class A common stock when the merger closed Nov. 17 and received, or were entitled to receive, a public merger consideration. The plaintiffs’ counsel seeks a $5.75 million fee award, plus reimbursement of almost $110,000 in expenses, according to a brief arguing the litigation pushed Rithm to raise its bid to $12.70 per share. Rithm supports the settlement but says they shareholder attorneys should get no more than $268,000 in fees after playing a minimal role in the price bump, according to a brief. Och and other founders also support the settlement but have pushed back on the suggestion that they sought to hinder the plaintiffs’ case.

Court order: The settlement hearing will take place in Georgetown, Del.

Rithm Completes Deal to Acquire Sculptor After Monthslong Drama

Monday: In re Rocket Companies Inc. S’holder Derivative Litig., Del. Ch., No. 2021-1021, trial 5/20/24.

At issue: A derivative lawsuit against online lender Rocket Companies Inc. goes to trial over the sale of 20.2 million shares of Class A common stock by majority shareholder Rock Holdings Inc. in March 2021 for approximately $500 million, shortly before disappointing revenue guidance sent Rocket’s market value plummeting. Rocket’s chairman, Dan Gilbert, initially was named as a defendant in the litigation, but claims against him were dismissed in January. The plaintiffs’ argue that Rock Holdings’ announcement that the sale facilitated a charitable donation to the city of Detroit by the Gilbert Family Foundation was “a cover story” when it knew that “Rocket’s business was going to fall back to pre-pandemic levels much faster than the market was anticipating,” according to a pre-trial brief. “There was nothing nefarious about this sale, which was not motivated by” material, non-public information, Rocket said in its own brief.

Court action: A four-day trial begins Monday in Wilmington, Del.

Dan Gilbert Faces $500 Million Insider Trading Suit Over Rocket

Monday: Newman v. Sports Acquisition Holdings LLC, Del. Ch., No. 2023-0538, bench ruling 5/20/24.

At issue: Architects of the merger that took online gambling company Super Group (SGHC) Ltd. public are facing shareholder litigation challenging the blank-check transaction. The lawsuit, targeting the finance and sports industry veterans who engineered the combination, is one of dozens of cases taking aim at the lopsided deal incentives that drove a wave of mergers in 2020 and 2021 between private businesses and special purpose acquisition companies, a type of publicly traded shell entity. The Super Group suit focuses on allegations that the deal’s sponsors concealed the gap between their SPAC’s $10-per-share nominal value and the roughly $4 a share it was likely worth after accounting for shareholder opt-outs, transaction costs, and other factors. They have moved to dismiss the case.

Court action: Vice Chancellor Lori W. Will is set to rule by phone on the motions to dismiss.

Super Group’s Blank-Check Backers Hit With SPAC Deal Challenge

Wednesday: Fortis Advisors LLC v. Johnson & Johnson, Del. Ch., No. 2020-0881, post-trial oral argument 5/22/24.

At issue: Johnson & Johnson faces fraud claims over its Ethicon unit’s $3.4 billion acquisition of Auris Health Inc., which was developing a surgical robot with blockbuster potential. The lawsuit, filed in 2020, says Ethicon duped Auris investors into making billions in post-deal payouts contingent on unachievable regulatory and sales milestones related to the “iPlatform” surgical system, then diverted funding to a competing project. Will, who let the case move forward in 2021, is set to hear an additional round of oral argument after presiding over a trial in January.

Court action: Post-trial oral argument in Wilmington.

J&J Merger Undermined Surgical Robot Project, Auris Exec Says

Thursday: Erste Asset Mgmt. GmbH v. Hees, Del. Ch., No. 2023-1191, oral arguments 5/23/24.

At issue: Kraft Heinz Co. senior leaders and affiliates of 3G Capital Inc. seek to halt an attempt to reopen litigation over claims the private equity giant made insider sales of $1.2 billion in stock shortly before Kraft’s share price plummeted in 2018. Earlier investor claims were tossed in 2021; that ruling didn’t affect a related lawsuit filed in 2022. The defendants named in the current action include two Brazilian billionaires, 3G co-founders Alexandre Behring and Jorge Paulo Lemann.

Court action: Oral arguments on the motion to dismiss will take place in Wilmington.

3G, Behring, Lemann Targeted in Bid to Revisit $1.2 Billion Case

Friday: Calif. Safe Soil LLC v. KDC Agribusiness LLC, Del. Ch., No. 2021-0498, post-trial arguments 5/24/24.

At issue: California Safe Soil LLC, which uses “breakthrough technology” to make fertilizer and pet food out of supermarket waste, and rival KDC Agribusiness LLC went to trial in February over claims that KDC used bogus deal negotiations to steal its trade secrets. Vice Chancellor Morgan T. Zurn now hears closing arguments in the case. KDC’s former principals attempted to delay proceedings with “frivolous” counterclaims that have since been dropped or dismissed, CSS said in a brief. KDC Executive Chairman Harold Kamine, his two sons, and KDC’s Chief Manufacturing Officer Barry Starkman argue CSS’s technology is “not just easy to duplicate, but in fact is a simple widely-known food processing process used in and out of the same industry,” according to an answering brief.

Court action: Post-trial arguments will take place in Wilmington.

Food Waste Recycling Firm CEO Says Rival Stole Trade Secrets